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April 27, 2012

On the money: Unilever admits food “area of focus” in North America

Unilever has admitted its food division in North America is "an area of focus" as parts of the business struggle amid the challenging trading conditions in the region.

By Dean Best

Unilever has admitted its food division in North America is “an area of focus” as parts of the business struggle amid the challenging trading conditions in the region.

The consumer goods giant yesterday (26 April) reported a recovery in its overall food sales volumes in the first quarter of 2012 after a year of lower volumes in 2011.

However, Unilever reported a mixed showing from its food division in North America. The company said it “performed well” in the dressings and savoury categories but revealed difficulties in spreads and ice cream.

“There are some parts that are doing very well, savoury, while there are others, such as spreads, where we have been quite aggressive last year with pricing and obviously while competitors have reacted, they haven’t to the same extent,” Unilever CFO Jean-Marc Huet said. “In ice cream, life has been difficult but we’re driving innovation. If you look overall at foods, it’s an area of focus and one that we’re taking very seriously.”

James Allison, head of IR and M&A at Unilever, said competition in the take-home ice cream sector had been “intense”. However, he said Magnum had “started very well” since last year’s launch and would be “supported” by the roll out of Magnum Minis in North America. 

North America remains a challenging market for Unilever’s business as a whole, which also takes in home and personal care products. The company’s underlying sales in the region increased 5% in the first quarter of the year but it said volumes remained negative due to the “difficult” market conditions.

“Once in a while in the last three to six months there have been positive signs when it comes to the economy but recovery is mixed and slow. This continues to be a difficult market and that is our assumption going forward,” Huet said. “Forty-five million Americans get food stamps; that really brings home the overall macro context.”

However, the Unilever finance chief said the company was performing better than the market as a whole in North America. “In terms of volume, that’s declined at a lesser rate than the overall market so we’re more competitive,” he said. “Overall, a difficult market, personal care with momentum and, in foods, there are some signs of good performance but it’s an area of focus.”

Volumes from others parts of the business grew faster than from food. Huet said the 5.9% increase in sales was “principally” driven by price but he labelled the performance as “encouraging”. He pointed to Unilever’s “market development” in the savoury category, where the company has extended its jelly bouillon technology.

Despite competition in the US, Unilever’s ice cream business has “driven growth” from its refreshment division, it said, helped by the warm March in parts of Europe.

Unilever’s shares rose yesterday after the announcement of its first-quarter results and the numbers were welcomed by analysts. However, Huet sought to manage expectations, pointing to a “weak prior-year comparator in Europe”, the extra trading day thanks to the Leap Year and this year’s earlier Easter.

The company has forecast a “modest improvement in full-year core operating margin, weighted towards the second half of the year”.

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